Property is ‘vital component’

22 October 2012

RICS has released its ‘Property in the Economy 2012’ report, a comprehensive review of the commercial property sector’s value and contribution to the wider UK economy.

The report evaluates key statistics across the commercial property sector broken down into three sections – ‘Property in the Economy’, ‘Property Stock and Construction Activity’ and ‘Occupying and Owning Property’.

Overall the report demonstrates that, despite market retraction and wider economic fluctuations, the property sector retains its prominent position in the context of wider economic productivity. Real estate’s output (including residential, commercial, construction activity and professional and support activities) accounts for approximately 14 per cent of total UK Gross Value Added (GVA). Although this decreases to 7.2 per cent in terms of real estate and construction’s contribution to total UK turnover, real estate and construction remain two of the UK’s most influential sectors. In addition, an increase in transaction levels, typically a major indication of the health of the sector and the economy - to £33.5 billion in 2011, compared to £24.3 billion in 2008 and £25.2 billion in 2009 – sets an optimistic tone for the future.

Much of the recent growth in transaction levels can be linked to the rise in overseas investors. In line with recent industry debate, and acquisition trends, the report shows that foreign ownership of UK commercial property has increased by 93 per cent since 2003. This statistic supports the ‘safe haven’ position of the UK, and the capital in particular, in the global marketplace.

The considerable tax revenues generated from the commercial property sector is further evidence of its contribution to the UK economy. The three major tax contributions of the entire sector equated to 12 per cent of tax receipts in 2009/10. These come from council tax and business rates (£47.7 billion), stamp duty relating to property and land (£4.9 billion) and S106 contributions (£502 million). Furthermore, commercial property remains a major employer in the UK economy with 461,000 people or 1.8 per cent of the total workforce employed in real estate in 2010.

Simon Rubinsohn, RICS Chief Economist, said: “Accounting for 72.5 per cent of the UK’s fixed tangible assets, property remains central to the wider economic context. Whilst the sector is strong overall, RICS’ Property in the Economy report does highlight some areas of concern.

“With new orders falling 40 per cent since their peak in 2007, the construction sector, and in particular housebuilding, remains in a critical condition. Furthermore, there has been a decline in average lease lengths over the past 10 years that is further contributing to instability in the market. It is positive that attention is drawn to these issues in order for organisations like ourselves to address them to ensure further growth in the property sector and subsequently the entire UK economy.”

Notably, the report highlighted sustainability as a major concern for the commercial property sector over the next few years. The Government is committed to making it unlawful to let commercial properties with an EPC rating of F of G after April 2018. However, 18 per cent of all EPCs show a rating of less than E. The majority (56.8 per cent) have achieved a C or a D rating with only 7.7 per cent within band B and just 0.5 per cent within band A. Only 23 properties out of nearly 300,000 surveyed have an A+ rating, meaning they actually produce more energy than they consume.

Johnny Dunford, RICS Global Commercial Property Director, said: “It is vital that action is taken now to improve the sustainability of existing commercial property stock to ensure it remains viable for the future. The Property in the Economy report highlights the critical importance of energy efficient buildings to occupiers but environmental and sustainable issues score only 4 out of 10 in tenant satisfaction levels. The industry must prioritise energy efficiency over the next six years if it is to meet occupier expectations and government sustainability targets.”